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The system for financing mortgages and regulating that
financing has failed, completely and utterly. The mortgage and
real estate markets are now in collapse.

Yesterday I wrote about how positive feedback loops lead
to collapse. Welcome to the U.S. housing and mortgage
markets. As I have documented here numerous times, the
entire U.S. mortgage market has already been socialized: 99% of
all mortgages are backed by the three FFFs--Fannie, Freddie and
FHA--and the Federal Reserve has purchased a staggering $1.2
trillion in mortgage-backed assets in the past year or so to
maintain the illusion that there is a market for mortgage-backed
securities.

There is, but only because the mortgages are backed by the
Federal Government and propped up by the Federal Reserve.

The mortgage market is completely dependent on government
guarantees and quasi-Government purchases of securitized
mortgages. If the mortgage market were truly socialized,
then the Central State would own the banks which originate,
service and own the mortgages.

But then the private owners and managers of the "too big
to fail" banks would not be reaping hundreds of billions in
profits and bonuses. And since the banking industry has
effectively captured the processes of governance (that is,
Congress and the various regulatory agencies), then what we have
is a system of private ownership of the revenue and profits
generated by the mortgage industry and public absorption of the
risks and losses.

Could anything be sweeter for the big banks? No.

The incestuous nature of the system is
breathtaking. The Fed creates the credit which enables
the mortgages, the Treasury guarantees the mortgages via Fannie,
Freddie and FHA, the Fed buys the mortgages ($1.3 trillion in
mortgages are on their balance sheet) and the private banks
collect the fees and profits.

One of the core tenets of the Survival+ critique is the State/Financial
Plutocracy partnership. There are many examples of this
partnership (crony capitalism in which the State is the
"enforcer" which collects the national income and distributes it
to its private-sector cronies), but perhaps none so blatant and
pure as the mortgage/banking sector.

But now the entire legal basis for that
privatized-profits, socialized losses system has
dissolved. The foreclosure scandal is not just a
"scandal" in which various frauds were brought to light;
it is the failure of the entire system of originating
mortgages that props up the entire real estate market.

"Title companies would be crazy to ensure title on anything
remotely associated with a foreclosed property because we don't
know how this is going to resolve itself," said Mark Hanson, an
independent housing analyst in Menlo Park, Calif.

The result: Not only could sales slow on foreclosures now
listed for sale, but it could also become harder to sell or
refinance properties that have been foreclosed upon at some
point in the past few years.

Real-estate agents are particularly worried about the
situation's impact on investors, the buyers who fix up
foreclosed homes for resale. Investors accounted for 21% of all
home sales in August, according to the National Association of
Realtors.

Success in challenging MERS’ role in a foreclosure could mean
the owner of a mortgage holds a loan without claim to the house
as collateral, Mr. Weissman said. That result could set off a
chain reaction reducing the value of mortgage servicing rights,
an asset many banks keep as an investment.

1. The banks which depend on revenues collected from mortgage
servicing are facing the possibility that millions of distressed
mortgages will enter legal limbo and not be paid; additionally,
millions of underwater homeowners realize they can stop paying
their mortgages with no near-term consequence because the
foreclosure system is frozen.

2. The mortgages which the banks are holding on their books as
income-producing assets at full face value are in effect either
worthless or depreciated to some significant but unknown degree.
If this fact were reflected in their balance sheets, all
the big banks would all be insolvent.

4. Pending sales of properties that were foreclosed are now of
dubious legality.

5. Anyone buying a house in foreclosure, or a house that was
foreclosed, cannot get title insurance.

6. Investors who have been propping up the housing market by
snapping up properties in foreclosure (REOs or "distressed
properties") face high risks and uncertainties in buying any real
estate that was in or is in the foreclosure pipeline. That means
markets will lose 30% to 50% of their buyers.

7. Buyers who closed on foreclosed homes now face legal
challenges to their ownership and potentially even "clawback" of
the property as the previous owner can claim he/she was defrauded
by a flawed/defective foreclosure process.

8. Real estate attorneys can rejoice: everyone will get sued, in
every court in the land. Banks will get sued, title insurance
companies will get sued, realtors will get sued, foreclosure
mills will get sued, MERS will get sued, and so on. The attorneys
general of the states will all sue the banks and mortgage mills,
claiming billions in damages.

Anyone who thinks this is all trivial technicalities is wrong.

9. The real estate market will collapse as the imbalance of
buyers and sellers swings to extremes. Buyers vanish as trust in
the institutions of real estate finance and property rights has
collapsed, and millions of distressed/defaulted mortgages don't
get paid. Underwater sellers have a stark choice: either dump the
house for cash (assuming the bank allows a short-sale and eats a
massive loss) or stop paying the mortgage and see what happens.

That sets up a new positive feedback loop in a very tenuous
market: millions of underwater homeowners will realize their
homes are plummeting in value and "recovery" is hopeless.
Millions more who were on the edge will be pushed underwater as
prices fall. The incentives for the newly underwater are clear:
stop paying the mortgage, since price "recovery" is hopeless and
the foreclosure process is frozen.

The imbalance between few buyers and millions of properties on
the market or in the shadow inventory has only one "capitalist"
resolution: the destruction of price down to levels that clears
the inventory.

Las Vegas offers a example of this clearing: condos are selling
for 15% or 20% of their bubble-era valuations--and this is with
massive Federal subsidies of the mortgage market.

10. There is a fundamental legal battle playing out between the
property rights and rules of law embodied in state laws, and the
Central State/Federal laws which enable MERS to transfer
ownership of mortgages as securities. You can't have both systems
at the same time; either transfers of mortgages and ownership and
the procedure of taking real property (foreclosures) meet state
laws or these laws have been rendered moot.

Either there is due process of law or you have a
kleptocracy/"banana republic" oligarchy. At present, that is the
decision we face as a nation. If the banking Elites and
their partners in the Central State (Fed and Treasury) are
allowed to "win" and gut the property laws of the states, then
the U.S.A. will be revealed as a kleptocracy/"banana republic"
oligarchy.

If state laws are upheld, then the "too big to fail" banks are
insolvent and they will fail.Then the question of
kleptocracy arises once again: will the banks be allowed
to fail as per Classic Capitalism, that is, their owners and
managers will have to absorb the losses of that
bankruptcy/failure, or will the Central State use its powers to
collect taxes and cover the private losses of the Bank/Financial
Power Elites? Privatizing profits and socializing losses has been
the entire game plan since the global house of cards collapsed in
2008.

It's decision time, citizens. Either the banks/Central
State "win" and we are a kleptocracy/ "banana republic," or they
lose and the U.S. mortgage/ banking sector implodes and
is either formally socialized (i.e. owned lock, stock and barrel
by the Central State) or rebuilt from scratch without big banks,
Federal guarantees and the Fed's incestuous interventions. ("We
create the credit that enables the mortgage, you issue the
mortgage, and then we buy the mortgage.")

There is no "fix" or half-measure that can patch this over now.

The non-mainstream media can speak the truth directly.
For example, here is the excellent Acting Man
blog:

The biggest question of all, is there anyone working on a
solution? I know the answer to that: No.

We now have socialized housing. If you disagree, just imagine
the consequences if government intervention were withdrawn.
Real estate markets would collapse immediately. The government
is the market. There is no exit strategy.

The feedback loops are in full runaway mode, and the end-state
will be a collapse of one system or the other: either the
incestuous banking cartel/Fed/Treasury system of "private
profits, socialized losses" implodes, or property rights and the
real estate market implode.

Right now, both are imploding, and each system's implosion
reinforces the other's collapse.